Amending Governmental 457(b) Plan's Normal Retirement Age

A fire district governmental 457(b) plan operates under the SunGuard plan document.  The plan defines NRA as age 65.  Employer wishes to change to age 50 and 20 years of service.  Also, for police/fire personnel, NRA will be age 50.

Couple of concerns.  First plan document only establishes an age for NRA.  Second, and most important, new NRA may impact participants in a negative way considering the new age and service requirements.

What do you think?

oldman63, what is NRA used for in the document, vesting for employer contributions? Eligibility for distributions? Of course, as a governmental plan, ERISA's vesting rules are not going to apply. The Code will merely require that the participants vest at NRA or plan termination. I would share your concern about telling someone age 64 with 10 years of service that they are not going to vested in employer contributions until they have worked another 10 years, but your state law and plan document may be unclear as to whether that would really be a problem.

But again, it would be important to understand here what the practical result of the NRA is. Often has very little consequence in a DC plan.

Piggybacking on Luke's comment, is the intention to redefine NRA as (for example) 50/20 or age 65?

The adoption agreement provides that "A Participant attains Normal Retirement Age under the plan when the participant attains age 65".  The base plan states "Normal Retirement Age is the age the Employer specifies in the Adoption Agreement provided that the age may not be: (i) earlier than the earliest of age 65 or the age at which the Participants have the right to retire and receive under the Employer's defined benefit plan (or money purchase plan if the Participant is not eligible to participate in a defined benefit plan) immediate retirement benefits without actuarial or other reduction because of retirement before a later specified age; or (ii) later than age 70 1/2".

I believe that even though the plan is not subject to 411(d)(6), changing the NRA from age 65 to age 50 and 20 years of service may conflict with state law.

oldman63, am I correct that the plan actually has no benefit the calculation of which involves an actuarial factor? If so, and if (I) participants currently vest in employer contributions before NRA, and (ii) a participant has the right to receive his or her account following separation from service, NRA, regardless of what it is, would appear to have no substantive effect in this plan. Is that correct?

In a typical governmental individual-account 457(b) eligible deferred compensation plan, the only effect of normal retirement age is to set which years a participant may use an extended (by section 457, rather than age 50) deferral limit.

The better way to write such a plan's provision or definition is to allow a participant to elect her normal retirement age within the bounds set by the tax-law rule.

https://www.ecfr.gov/cgi-bin/text-idx?SID=1278583cb06cb8fad0c0490238154ae1&mc=true&node=se26.8.1_1457_64&rgn=div8

Also, it's better to expressly provide that an election is not made until the participant's deferrals exceed what would have been proper without the "special section 457 catch-up".